First of all Germany will sell you the U214, the only problem now is that it would be stupid to do that during the elections, because it would give other parties a chance to attack. When the elections are done in sept I don't think there will be much trouble, because like most of the western countries, Germany also wants to make money!
Secondly, don't you think it is a bit cheap to say that they have problems to sell to Pakistan, because it is a muslim country? There are no big problems to sell the U214 to Turkey right?
The problem is, that Pakistan at the moment is the center of terrorism and Taliban in the worlds view.
You are right, of course it's not 98% terrorist and Taliban, but the threat these few people means to western countries don't let them see it differently. Things like Taliban taking over Swat, terrorists attacks from Pakistan to other countries and even normal news about bomb blast in Pakistan, didn't make it better. Combine that all with the fear of unsecure nuclear weapons and you have more than enough reasons (for western countries) not to sell more hi tech arms, or at least to have doubts.
The arms race reason is a double edged sword, on the one hand they are right, cause India is arming up to counter China and Pakistan is arming up to counter India, everybody with their own capabilities of course. On the other hand this didn't started last week, the arms race began decades ago and the western countries served all sides with arms and made a lot of money with it, so that is really not a real reason.
At the end both, India and Pakistan will be not seen as equal to western states, even if both are nuclear powers. The difference at the moment are, the money and the big market India can offer (which makes it easier to deal with them) and the problems of that Pakistan has with Taliban and terror groups.